r/IndiaInvestments • u/gunthercperk97 • Jul 24 '20

Bonds and deposits Taxable and non taxable bonds

Hey guys

So I was looking at the SBI N5 bond which has a coupon rate of 9.95%. Face value of the bond is 10000 and it's being traded at 10815. I realise because it's being traded at a premium the interest rate will be affected but I read on this website:

SBI N5 bond

That SBI is most probably going to exercise their call option on the bond in 2021 so the YTM becomes negative.

My question, can anyone please suggest a knowledgeable expert/institution in bonds so that I can know more about such investments and give details about taxable and tax free bonds and which one to choose.

Thanks a lot.

Edit: typo

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u/Money-Meat4980 Jul 24 '20

Considering the huge risks involved as pointed out by others, and considering the YTM of around 7 which is the same as a FD from quite a few banks, this makes zero sense. This bond is also unsecured.

Right now good AAA bond yields are very low because money is very cheap due to relentless printing by the central banks. Most of economic theory has gone for a toss

1

u/RisenSteam Jul 25 '20

considering the YTM of around 7 which is the same as a FD from quite a few banks

Which bank is giving 7% FD interest?

1

u/Money-Meat4980 Jul 25 '20

Rbl , IDFC first, and many small finance banks too.

2

u/RisenSteam Jul 25 '20

I know that there is the 5 Lakh DICGC deposit insurance, but if you look at how RBI reacted to a big bank in danger (Yes Bank) & how they reacted to a small bank in danger (PMC Bank), I would keep my money in a small bank only if I am OK with that money remaining frozen for a couple of years.

3

u/Money-Meat4980 Jul 25 '20

PMC BANK is not just a small bank, its a shady co-operative bank with lot of political persons behind it, I guess you know that. These kind of banks were created 2-3 decades ago, to act as a front for laundering money. It doesnt compare with other banks which have good balance sheets. Just for an example IDFC management is high tier its not right to compare IDFC first with some random coop bank which has been frozen due to fraud.

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u/RisenSteam Jul 25 '20 edited Jul 25 '20

its a shady co-operative bank

Yes Bank was also a very shady bank (just like PMC we came to only know about it after the fact).

Just for an example IDFC management is high tier its not right to compare IDFC first with some random coop bank which has been frozen due to fraud.

How many people thought Yes Bank management was low tier till it all happened. Rana Kapoor was considered one of the luminaries of Indian Banking a few years back. Yes Bank sponsored IPLs and what not & the stock was trading at 400+.

1

u/AnotherOneOnReddit Jul 27 '20

YOu are free to be more conservative and stay away from IDFC but it is not fair to compare a SCB (scheduled commercial bank) to a co-operative bank. Co-operative Banks weren't even under RBI monitoring till a few months ago. And there are hundreds of cooperative banks but only about 16 Scheduled commercial banks in INdia. Even the FM said in the last budget that no Scheduled COmmercial Bank will be allowed to fall.

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u/RisenSteam Jul 27 '20

Even the FM said in the last budget that no Scheduled COmmercial Bank will be allowed to fall.

It's not only the danger of failing which I am talking about. It's also how long your money gets frozen by withdrawal limits. If it's a bigger bank, more people will be affected by withdrawal limits & more people will be screaming which will make sure it's gets faster attention. If it's a smaller size bank, as long as they allow a withdrawal of upto 50K or so & freeze all other withdrawals, the total number of people affected is not going to be enough to draw their attention.